Japan's PM criticizes U.S. trade-target plan: WSJ

TOKYO (MarketWatch) -- A week before U.S. President Barack Obama arrives in Japan for a meeting of regional leaders, his host signaled firm opposition to one of the main items on the U.S. agenda for discussion in upcoming global economic talks.

In an interview Saturday with The Wall Street Journal, Prime Minister Naoto Kan criticized a U.S.-backed proposal for an international pact with numerical targets limiting nations' trade surpluses. He also strongly defended Japan's recent intervention in foreign exchange markets in order to halt the yen's sharp rise against the U.S. dollar -- suggesting such action was necessitated by recent aggressive moves by U.S. policymakers to pump up the American economy.

"We need to have more discussion on whether it's appropriate to set ceilings and floors for trade balances as percentages of gross domestic product, as numerous factors affect trade balances," the Japanese leader said, adding: "I don't necessarily think it's appropriate"

The comments came as U.S. Treasury Secretary Timothy Geithner faced similar resistance to his consensus-building efforts on lowering current account imbalances from Asian finance ministers gathered in Kyoto ahead of next Saturday's meeting in Yokohama of leaders from Asia-Pacific Economic Cooperation governments. The U.S. is also expected to promote the idea at the Group of 20 summit in South Korea, slated to take place the day before the APEC gathering in Japan.

The prime minister also tied the yen's surge to Washington's actions to keep the U.S. from slipping back into recession, such as the Federal Reserve's large-scale easing of monetary policy. "First and foremost, one of the biggest reasons for the yen's rise is the dollar's weakness, a reflection of America's economic policy. We need for there to be a clear understanding of that background..."

And while many nations have seen their currencies appreciate recently against the U.S. dollar, Mr. Kan stressed that Japan's weak economic growth make its ability to cope very different from that experienced by emerging markets where growth is strong and exports are rising steadily. "In that sense, we would really like the U.S. to understand the situation we are facing," he said.

Mr. Kan also made clear that Japan reserves the right to intervene in currency markets again. Rapid one-way movements in exchange rates are problematic, he said, noting that this was why Japan felt compelled to intervene in September. "If we face another rapid surge in the yen, such a step may become necessary," he said.

In the interview in his office, a calm but engaged Mr. Kan touched upon a variety of subjects, including Japan's sensitive relations with China, what he sees as improving ties with the U.S., and his hopes for forcing Japan's entrenched agriculture lobby to accept Japan's participation in negotiations for a multilateral free trade pact initiative.

Over the past week, his government has been rocked by a series of unauthorized leaks of confidential security-related material -- an issue that has become a big embarrassment for his five-month old government. Highlighting it as a "very big problem," he called for a rethinking of policies designed to keep sensitive information out of the public domain. "We need to drastically reform the way the government administers [confidential] information to make sure it's done properly."

Speaking of the unofficial posting on YouTube Friday of several videos showing a confrontation between a Chinese fishing boat and a Japanese Coast Guard vessel in September, Kan said Japan would probably seek from YouTube's owner, Google Inc., in finding out the identity of the source of the leak. "I believe that will become a fundamental part of the (official) investigation, so I think we will be able to obtain their cooperation."

Asked to reflect on the chill that has come over China-Japan relations since the collision, the prime minister made only the most-indirect criticism of what many Japanese and American officials have called China's heavy-handed response to the incident, saying: "As far as China's various actions go, it wields enormous economic power so as a major world player we want the Chinese to act in accordance with global rules, and that's our basic expectation of China."

Mr. Kan also predicted that -- despite heightened Sino-Japanese tensions following the collision at sea captured in the videos and rekindled passions over the sovereignty of nearby uninhabited islands -- mutually beneficial interests would lead to an improvement in ties with Beijing. "In due time, we'll see a return to the stable relationship we had previously," he said.

While Japan has faced recent challenges to its territorial claims with China in the south and Russia in the north, Mr. Kan implied that he is in no hurry to ramp up defense expenditure. The prime minister refused to rule out cuts in next year's defense spending, pointedly noting that host nation support paid to cover the cost of U.S. forces in Japan was part of the overall budget. "The current fiscal restraints we face are very severe. So with that in mind. it's quite important to create a system which can deal with changes in the status quo and [the need for] greater efficiency."

At the same time, Mr. Kan stressed that strengthening the security alliance "is extremely important for the whole Pacific region" and remarked upon an improvement in U.S.-Japan ties over the past year. "I do believe the bilateral relationship is currently in a very good condition," he said.

That seemed to put distance between himself and his predecessor, former prime minister Yukio Hatoyama, who came into office indicating a desire to play down somewhat the U.S. relationship, and to reach out more to China. The former leader had also sowed confusion about Tokyo's policy regarding an existing plan to relocate some U.S. troops stationed in Okinawa.

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